We will post a more detailed summary of the Budget proposals in the coming days, but in the meantime here is a summary of some of the items that catch our eye and may be most relevant to our clients.
We also comment on welcome proposals to clamp down on the industrial scale tax avoidance practiced by some multi-national companies, particularly in the online sector.
The economic picture
The current state of the nation’s finances, and its prospects for the immediate future, have deteriorated. It had already been announced in the last few days that the latest public borrowing figures had been higher than predicted, and now predicted growth in the economy has been downgraded, with blame placed on the stubborn failure to improve productivity more quickly.
Lower growth feeds through into lower tax receipts and higher welfare costs. Add to this the extra £3bn set aside towards the cost of Brexit, and the Chancellor had little scope for giveaways.
Previously announced increases in the personal allowance to £11,850 for 2018/19 will be honoured, and the higher rate threshold will become £46,350.
There had been talk of lowering the VAT registration threshold, partly in response to the “gig economy”, partly to bring us into line with our trading partners, and partly simply to raise money. The Chancellor dismissed this and confirmed the £85,000 annual turnover limit will remain in place for two more years.
There was concern that another raid would be made on pension schemes, perhaps by lowering contribution limits or restricting tax relief to basic rate. In the event this didn’t happen and in fact the lifetime allowance has been increased to £1,030,000 in line with CPI.
The headline-grabbing proposal is the abolition of stamp duty land tax for first time buyers on properties worth up to £300,000.
Our own view is that this increases the demand side of an already distorted market and will be of little long-term benefit to the economy.
Much more valuable would be to unlock some development land and otherwise stimulate the supply side of the equation – we really need to build far more houses. Happily, there are also proposals on this front too.
Research and development
R&D tax credits already provide a welcome boost for tech and other companies who innovate. The rate of credits for the RDEC scheme- mainly affecting larger companies – is increased from 11% to 12%.
Enterprise investment scheme
The annual limits for tax relief for risk capital have been increased to allow up to £2m per year for investors in “knowledge intensive companies”. At the same time the rules will be tightened to exclude some lower risk companies.
Alongside this, £20bn more venture capital will be made available via a new fund to be launched via the British Business Bank.
“Off payroll” workers in the private sector
HMRC have already introduced measures to ensure public sector bodies apply PAYE to contractors (typically operating through a limited company) who would otherwise be employees.
A review is to be carried out with a view to extending this to the private sector.
In recent times there has been a great deal in the press about how multi-national companies – Uber, Apple, Amazon, Google, and Starbucks are a few that spring to mind – are able to avoid paying their full share of UK tax on the profits from their UK businesses. This is generally achieved either by conducting transactions via an offshore entity or by paying royalties for the use of intellectual property to an offshore company.
This money typically travels through complex networks of companies based in the Netherlands, or Ireland -or both – and ends up in a tax haven. Its all perfectly legal but highly unsatisfactory so far as the UK exchequer is concerned.
The Budget contains important announcements in this area.
Firstly, from April 2019, the UK will levy a withholding tax on royalties paid to low tax jurisdictions.
Secondly, a review is to be made into the whole question of the taxation of the digital economy, with the stated objective of taxing economic activity in the country where the customer resides. Work in this area is already underway internationally, but any greater resource allocated to it by the UK is good news.